Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Apple fails to exclude evidence, decertify class in iPod antitrust litigation, (Dec 1, 2014)

By Jody Coultas, J.D.

In a longstanding antitrust suit filed by iPod purchasers, Apple Inc. was denied, in part, motions in limine to prevent the purchasers from submitting certain evidence or testimony at trial in the federal district court in Oakland (The Apple iPod iTunes Antitrust Litigation, November 25, 2014, Rogers, Y.). The court also denied Apple’s motions to preclude testimony and decertify the class.

The class of purchasers alleged that, after lawfully acquiring monopoly power in the market for portable digital music players with the introduction of the iPod, Apple violated Section 2 of the Sherman Act by unlawfully maintaining that power. The purchasers charged that Apple's release of the 7.0 version of iTunes unlawfully maintained Apple's monopoly in the market for portable digital media players by making demand for iPods less elastic. Specifically, the purchasers claimed that 7.0 resulted in an increased "lock-in" effect for iPod owners who purchased songs online. Lock-in, according to the purchasers' principal economics expert, "is a form of foreclosure that arises from actions that increase the cost to consumers of switching to a product that has better quality and/or a lower price."

Motions in limine. Apple sought an order prohibiting purchasers from presenting any evidence or eliciting any testimony that Apple could or should have shared technical information with third parties or competitors, including RealNetworks, Inc., or had a duty to aid third parties or competitors, including RealNetworks, in developing products that were interoperable with Apple’s products. Additionally, Apple sought an order to prohibit purchasers from presenting evidence relating to less restrictive alternatives to Apple’s product designs, including whether Apple could or should have made its integrated platform interoperable with third parties or competitors. Apple also sought to exclude and to strike evidence or argument contrary to the court’s 2011 Summary Judgment Order.

The purchasers and the court agreed with Apple that it had no duty to aid or assist third party competitors with respect to interoperability or other purported less restrictive alternatives. However, purchasers will be allowed to challenge Apple’s stated reasons for its conduct in their attempt to show that the updates in question were in fact not genuine product improvements. Therefore, the motion to exclude such evidence where it served an alternative permissible purpose was denied by the court.

Whether iTunes 7.0 and 7.4 were product improvements had yet to be determined. Where genuine product improvements exist, the fact finder may not balance the value of the improvement against any purported anticompetitive effects. The court will pre-instruct the jury as to this principle of law, as well as that Apple generally had no duty to aid competitors. Also, evidence that does not solely address whether iTunes 7.0 or 7.4 was an improvement on its predecessor should only be introduced after the court provides jury instructions establishing the proper context for, and relevance of, that evidence.

A jury may generally consider all of the relevant circumstances in determining whether anticompetitive conduct exists. The fact that the use of an integrated platform in one instance was found not to be anticompetitive in the 2011 order did not necessarily mean that its continued use later as part of a broader, different landscape in a different circumstance would not support an opposite finding. Therefore, the third motion in limine was denied.

Motion to preclude testimony. Apple’s motion to preclude testimony at trial was denied by the court. Apple argued that the owner of a third party was not properly disclosed as a potential witness and allowing his testimony would therefore be prejudicial to its case. However, the purchasers’ failure to timely disclose the owner was ultimately harmless and substantially justified.

Motion to add class representative. Purchasers’ motion to add a class representative or, in the alternative, for a third party to intervene was denied by the court. Purchasers moved to add Delaware Computer Exchange, K&N Enterprises f/d/b/a Delaware Computer Exchange, or Keith Riegel as owner of K&N. However, the three proposed class representatives lacked standing.

Motion to decertify reseller portion of class. Decertifying the class was not prudent or warranted, according to the court. Apple argued that end-users are not proper representatives for resellers—particularly for large resellers such as Wal-Mart, Best Buy, and Target. The court declined to revisit this previously-resolved issue so soon before trial, especially where no intervening events have led to changed circumstances. Even if Apple ultimately prevailed on the motion, there is no prejudice in addressing the issue after trial given that the parties have segregated their damages analyses between the consumers and the resellers.

The case is No. 05-CV-0037 YGR.

Attorneys: Andrew S. Friedman (Bonnett Fairbourn Friedman & Balint, PC), and Bonny E. Sweeney (Robbins Geller Rudman & Dowd LLP) for Melanie Wilson, and Mariana Rosen. William A. Isaacson (Boies Schiller & Flexner) for Apple Inc.

Companies: Apple Inc.

Cases: Antitrust CaliforniaNews